Euro Bank Run Shifts To Insurance Companies As Lloyd's Of London Pulls Cash From European Banks

First it was US money markets; then it was various European industrial concerns (which somehow double down as banks); then it was China; now the bank runs shift to insurance institutions when, as Bloomberg reports, Lloyd's of London has decided to pull peripheral Euro bank deposits. What next: complete collapse of European interbank market as bank runs become a daily thing at both the retail and institutional level? Well, we already anticipated that. But it is something totally different to see it happen in practice.

From Bloomberg: "Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution. "“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.” Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions. “We have a very conservatively positioned balance sheet,” Savage said. Lloyd’s also holds about a third of its assets in mainly U.S. and U.K. government bonds and a third in corporate bonds, he said." As usual, the biggest threat for European banks are not short sellers, not even naked CDS traders: it is precisely this - a deposit run, which saps the liquidity lifeblood out of any bank, hence making its collapse a matter of time.

Lloyd’s, founded in a London coffee house in 1688, swung to a 697 million-pound pretax loss in the six months to June 30 after the most expensive first half for natural disasters on record. The market made a profit of 628 million pounds in the same period a year earlier, the London-based market said in a statement today.

“These are tough times for the insurance industry, but we are well positioned to handle them,” Chief Executive Officer Richard Ward said in the statement. “While interest rates are low and equity markets are volatile, we can’t rely on investment income to subsidize our underwriting. We must decline under- priced risks.”

Insurers’ profits have been hurt by natural catastrophes, including the earthquake and tsunami that struck Japan in March, causing record insured losses of $70 billion in the first half of the year, according to broker Guy Carpenter & Co. At the same time, record low interest rates are crimping investment returns.

The insurance markets made 548 million pounds on its investments in the period, 8.2 percent lower than in the first half of 2010 as interest rates in the U.K., U.S. and the euro zone neared record lows.

“I cannot see any reasonable prospect of making decent investment income in the medium term,” Savage said.

Lloyd’s had a combined ratio of 113.3 percent in the first half, meaning for every pound it took in premiums, it paid out 1.13 pounds in claims. That worsened from 98.7 percent in the first half of 2010.

Look for a flurry of refutations from Europe which seeks to damage control this latest fact as rumor and innuendo.

roller coasters are recurrent travellers along the same rails. So we have the feeling we've been there before. It goes on and on, until it stops. Enjoy the ride and hang on to your cool, its only fiat.

Oh come on, we gotta have somethin' to piss and moan about. Keeps the animal spirits contained, inside their homes, women and children are safe, samll creatures don't need to be locked up and when we get bored we can watch old Jersey Shore or Weather Channel reruns.

Where are they running to with the cash...Swizerland???? Its not gold and silver...we need to watch wheelbarrow sales..see if they are skyrocketing..maybe they are just running home with all the cash and putting it under their beds...

This is suspicious, all by itself. It's been so quiet about the story on the gold found to be adulterated with tungsten story, that I have to wonder what kind of dirty back room deal is working behind the scenes. So many banks are vulnerable and Lloyd's was reportedly the underwriter on gold deposits in Canada and England. "The Four Money Questions" tell me that this is being swept under the rug because somebody stole for the "right" people.

See, yesterday or the day before, Seimens pulled their money out of commercial banks and parked it with the ECB directly. Yes, that was reported. With the ECB.OK, so the bank is short a deposit and has to borrow it somewhere else, right?So they go to the ECB who now has excess funds (from Seimens) to lend.So ECB parks its cash with the bank that Seimens pulled it out of.Recycling complete.Neither of which have any meaningful capital whatsoever.And not like the ECB's balance sheet isn't got loads of unrepentantly toxic bad shit paper all over it either....

The banks which are surviving under the onslaught of the economic crisis are becoming smart and starting to realize the need for some form of insurance for their funds, and in turn are causing the other banks to be sapped dry of liquidity.